Tax questions re Roth IRA distributions
Hello,
1) Do Roth distributions come into the calculation of taxation of SS benefits…?
The Social Security Benefits Worksheeet (page 28 of 1040 instructions) appears to require entry of virtually ALL income, including tax-free municipal bond interest, in calulation of the amount of SS benefits that are taxable. However, Roth IRA distributions are not mentioned. I’m finding it hard to believe Congress would have allowed this potential revenue source to escape…!
Am I missing something…?
If not, it seems a no-brainer to maximize Roth assets and minimize TIRA assets, via contributions and Roth conversions, in order to minimize taxation of SS benefits. Yet I’ve never seen this recommended by retirement investment or tax advisors.
2) Are Roth and TIRA distributions to be included in Line3e “Gross Income from all sources” of Form 1116 (Foreign Tax Credit)…?
Since it does not say “Taxable” Gross Income, I might conclude that Roth distributions should not be included, but TIRA distributions should be. However, I cannot find ANY mention of Roths or TIRAs anywhere in the defining documents, Pub 514 or form 1116 instructions.
Thanks…!
Permalink Submitted by Alan Spross on Fri, 2009-06-26 23:20
A Roth distribution will not affect taxation of SS benefits, and this has been a recognized advantage all along. However, since the AGI threshold for SS inclusion has never received an inflation adjustment, more and more people are paying taxes on SS benefits than ever before, and still will even if they convert considerable amounts to a Roth. And if you convert after having claimed SS benefits, the conversion itself can trigger more taxes on SS income.
Gross income is defined as income that is not exempt from taxes, so it includes only the portion of a TIRA or a Roth distribution that is taxable under the respective rules. This should also apply to Form 1116 calculations, with taxable amounts being included, but not returns of basis or tax free earnings in the case of a Roth IRA.
Permalink Submitted by [email protected] on Sat, 2009-06-27 03:50
Thanks, alan….
And extra thanks for the heads up on extra hit due to the conversions…. I hadn’t thought about that. Was thinking to use up the 15% bracket with conversions… but that will just cause extra tax on SS bennies… Can’t win…!